Credit Crisis Reshapes Banking Landscape

All has changed, utterly changed, to paraphrase Yeats. Major mergers, a decline in consumer trust and the prospect of increased regulation are sure to influence banks' technology spending for the foreseeable future.

Now retail banking, which was in the shadow of the high-stakes wholesale side, is being reappraised. Many in the U.S., including Tabb, read the decision by Wall Street's last remaining investment banks, Goldman Sachs and Morgan Stanley, to switch to commercial bank charters as "absolutely" a play for funding in its easiest form: consumer deposits.

"It's funny," says former banker turned Aite Group (Boston) analyst Alois Pirker. "When I was at UBS, there was no interest in retail. Now it's saving them." (UBS, the biggest loser on Tabb's list, lost $87 billion from its stock value through October.)

Frankfurt-based Deutsche Bank (US$3.1 trillion in assets) announced in mid-October a big push into retail banking. It did not respond to BS&T's queries as to whether the goal is to boost liquidity and what its technology plans are for its 400 new European branches. Deutsche also announced it would cut 1,100 back-office jobs.

Rebirth of Community Banking?

At the other end of the banking barbell are ascendant community banks. Aside from the likely battering of their stocks (if they are public), many are reporting solid financials because they didn't dabble in subprime mortgages or their derivatives.

Community bankers tell BS&T that they are benefitting from the compromised position of the big banks. As consumers run to a perceived safe haven, Brent Rickels, SVP of First National Bank of Bosque County, says, "We've been growing steadily because of the influx of cash." In the past two months Rickel's bank has added a significant $2 million in deposits, growing its asset base to $97 million. He says the money is mostly from consumers who pulled out of investment banks and large banks.

Similarly, Joe Nicotera, SVP of Mercantile Bank & Trust Co., a Boston-based community bank with $139 million in assets, says his institution has gained $4 million in deposits over the past 18 months and expects to win substantially more using remote deposit capture. (For more on Mercantile Bank's RDC strategy, see page 41.) "This could become very big for us in the coming year as more businesses look for a smaller bank with all that is going on in the banking world," he says.

Separately, Boca Raton, Fla.-based Sun American Bank ($649 million in assets) aimed to capitalize on depositors' concerns by introducing in October a scheme to distribute consumers' deposits with Sun American across multiple institutions to overcome the newly raised FDIC limit and insure deposits greater than the new $250,000 ceiling.

More Changes to Come

Another backdrop to bank/technology prospects is new global competitors that, unsullied by subprime loans, may be on the march. For example, Madrid-based Banco Santander (US$1.2 trillion in assets), which owns part of subprime-weakened Sovereign Bank ($85 billion in assets), avoided helping inflate one of Europe's biggest housing bubbles ever and agreed in October to buy the rest of the Wyomissing, Pa.-based bank.

The other big environmental change in banking is possible new, international regulation to ensure that a similar domino effect can't take down the world's banks again. For instance, British Prime Minister Gordon Brown -- who has referred to the subprime crisis as "this problem that has come from America" -- urged at an Oct. 15 E.U. meeting that the International Monetary Fund should act as a global financial regulator with jurisdiction over national financial regulators in the U.S. and elsewhere. This increase in regulation obviously could create a rash of compliance-related technology changes.